Labor Day Weekend has ended, and the year is two-thirds over That means it’s a good time to assess what has happened and where we stand in the markets. It’s also a good time to remember what you might have been feeling earlier in the year when asset classes were behaving differently.Understanding your emotions is a big part of successful investing, and can help you deal with market volatility in the future.
US Stocks In 2008 – Up, Down, and Up
The S&P 500 Index ended August up 9.94% for the year. But that seemingly happy statistic doesn’t indicate what an investor might have felt at various points during the year. After a blistering January during the first three weeks of which it gained nearly 10%, the market melted down in February and March during which it gave back the January gains.
It’s hard to remember now, but many investors were euphoric in January and terrified in March. If you examine our phone logs, they will bear that out. We always get more calls from clients and prospective clients when things look difficult, and our phones were silent in January and ringing non-stop in March. My colleague Danny Ratliff and I also fielded a memorable call on our radio show from an investor in his mid-50s with a balanced allocation whose portfolio was down 5% from its peak. This person was unnerved by that decline, but it didn’t occur to him that he should expect that routinely from a balanced portfolio.
Lessons
The first lesson investors can learn from this year’s market moves is that short term (say, month-to-month) forecasting is virtually impossible. Don’t even try it. We try to manage risk as much as any advisory firm, but no advisor can deliver all of the market’s upside and none of its downside or time every wiggle and squiggle in all asset classes. Some of the burden of achieving good returns falls on you and your ability to control your behavior and to be realistic about volatility.
